Correlation Between Inverse Dow and Inverse Nasdaq

Can any of the company-specific risk be diversified away by investing in both Inverse Dow and Inverse Nasdaq at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Inverse Dow and Inverse Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Dow 2x and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Inverse Dow and Inverse Nasdaq and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Inverse Dow with a short position of Inverse Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Dow and Inverse Nasdaq.

Diversification Opportunities for Inverse Dow and Inverse Nasdaq

0.47

Correlation Coefficient

Inverse Dow  Inverse Nasdaq

Very weak diversification

The 3 months correlation between Inverse and Inverse is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Dow 2x and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 and Inverse Dow is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Inverse Dow 2x are associated (or correlated) with Inverse Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Nasdaq 100 has no effect on the direction of Inverse Dow i.e., Inverse Dow and Inverse Nasdaq go up and down completely randomly.

Pair Corralation between Inverse Dow and Inverse Nasdaq

Assuming the 90 days horizon Inverse Dow 2x is expected to generate 1.46 times more return on investment than Inverse Nasdaq. However, Inverse Dow is 1.46 times more volatile than Inverse Nasdaq 100 Strategy. It trades about -0.01 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about -0.05 per unit of risk. If you would invest  2,767  in Inverse Dow 2x on October 22, 2024 and sell it today you would lose (43.00) from holding Inverse Dow 2x or give up 1.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Inverse Dow 2x  vs.  Inverse Nasdaq 100 Strategy

Inverse Dow 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Dow 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inverse Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Nasdaq 100 Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Inverse Nasdaq is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Dow and Inverse Nasdaq

The main advantage of trading using opposite Inverse Dow and Inverse Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Dow position performs unexpectedly, Inverse Nasdaq can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Inverse Nasdaq will offset losses from the drop in Inverse Nasdaq's long position.

The idea behind Inverse Dow 2x and Inverse Nasdaq 100 Strategy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.